The Internal Revenue Service mandates that every company that hires another to provide services or lease business space must issue 1099s when payments made in a given tax year meet or exceed $600. Staffing agencies, which provide temporary, contract or contract-to-hire personnel, provide a service that falls under this classification. Therefore, unless staffing agencies meet the corporation exemption, companies must issue 1099s to them.

Staffing Agency 1099s

If your staffing agency is incorporated, it does not receive Form 1099-MISC for service payments of any amount. All non-incorporated staffing agencies must receive a 1099-MISC including those operating as general partnerships, sole proprietorships and those formed as legally separate entities operating as limited liability companies and limited partnerships. Since most customers know that they must issue your firm a 1099, they usually will request that you complete a W-9 for your agency. However, they do sometimes forget. If your customer did not request one, include one with your company’s invoice once the $600 threshold is reached because accounting departments generally keep W-9 copies on file for service providers and vendors. Your customer uses the W-9 data to prepare the 1099 forms they issue to your agency and the IRS.

Service Payments – Hourly

Staffing agencies are typically compensated at a set fee embedded in the quoted hourly wage or as a commission or fee in addition to the hourly wage or salary. For example, the rate your staffing agency pays an administrative temporary hire may be $12.00 per hour but the rate you charge your clients may be $15.00 per hour. The operating profit that goes to your company is the $3.00 per hour. Staffing agency customers report total payments made according to the amounts shown on the invoices. Therefore, if a customer only engaged your firm for one administrative temporary worker but used her for 300 hours during the course of the year, the total payment that will show on the 1099 your firm receives is $4,500.00.

Service Payments – Salary

Alternatively, your company may place an individual in a one-year contract for a flat rate salary. For example, your company may provide a salaried employee for a $72,000 charge to the customer but a $60,000 payment to the individual. Usually staffing agencies present the customer with the total cost and not the actual cost of its personnel. Therefore, the 1099 for this payment, assuming it was your firm’s only contract with this customer, would show $72,000 in total payments received.

1099 Due Dates

Your agency customers must mail the 1099-MISC to your firm by January 31 after the end of the calendar year. Businesses must paper file 1099s with the IRS by February 28 and e-file by March 31. The IRS double checks 1099s it has on record for your agency against information you include on your tax return. If you under-report income, you could be subject to penalties.

References

About the Author

Tiffany C. Wright has been writing since 2007. She is a business owner, interim CEO and author of "Solving the Capital Equation: Financing Solutions for Small Businesses." Wright has helped companies obtain more than $31 million in financing. She holds a master's degree in finance and entrepreneurial management from the Wharton School of the University of Pennsylvania.